August 1, 2010
AggMan Index: Down, But Not Out
The past two months have not been kind to the overall markets or the AggMan Index as the equity markets react to concerns over European debt issues and the overall global economic recovery. Since the end of April, these concerns have rippled through the S&P 500 resulting in a decline from 121.4 to 100.7, a reduction of 17.1 percent. While the AggMan Index “outperformed” the broader market, the index also posted a 9.3-percent reduction and now stands at 97.1 as of the end of June. In the coming weeks, we will start to see second quarter earnings results for most of the public industry players. The first glance at what these reports will hold was the CRH trading statement that was recently released and showed a 10-percent decline in first-half 2010 revenues and a 20-percent decline in profitability. While the first half of the year is typically less active, it seems that industry sentiment is that the season will not be as active as previously anticipated with states continuing to struggle through their own fiscal issues and the remaining stimulus projects not enough to fill the gap. Additionally, the residential market has not posted any meaningful uptick to help fill the gap. As a result of the slower recovery, several companies have been forced to look at options to sell non-core assets or forced to sell as a result of pressure from debt providers. While the near-term is still a bit unclear as to when “normal” activity will return, the long-term prospects remain strong — it’s just a matter of time.
Summer Heats Up, But M&A Remains Lukewarm
The sluggish economy continues to have a depressing effect on merger and acquisition activity, with small transactions and distressed situations leading the way. While many buyers continue to see attractive investment opportunities that make for good long-term growth, current debt levels and lack of immediate returns are taking the wind out of the sails.
One company dealing with the challenges of its debt levels is Cemex. Cemex has expressed concerns that its efforts to cut debt will mean sitting out the next round of industry consolidation. Struggles to reduce debt and work within loan covenants means that any expansion will most likely have to come through an investment fund, Blue Rock Cement Holdings, in which Cemex will be a minority partner, rather than the direct purchaser. Cemex will own 10 percent to 20 percent of the fund and the opportunity to operate any cement plants acquired or built. At the end of five years, Cemex will have the option to buy out its partners.
VantaCore Partners acquired Lafarge North America’s Clemons Aggregates site in Denham Springs, La. The operation has an estimated 7.5 million tons of sand and gravel reserves and sells approximately 550,000 tons annually. This is VantaCore’s fourth purchase, the first since receiving $100 million in equity funding from Trilantic Capital Partners.
Oldcastle Materials has acquired select assets of Schwab Industries in Ohio and Florida. Schwab Industries Inc. filed for Chapter 11 bankruptcy protection on Feb. 28, 2010. The Ohio assets include 12 ready-mixed concrete locations, two block plants, and one aggregate distribution terminal. The business operates under the trade names Twin Cities Concrete, Quality Block and Supply Inc., and Medina Supply Co. Schwab operates in Florida as Schwab Ready-Mix and Eastern Cement Corp., with seven ready-mixed concrete locations and a cement import terminal.